Market Trends 4th Quarter: Is it a Good Time to Invest?

Don’t sleep on Q4—it could be the perfect time to snag a deal.
Seth Kniep
Jan 12, 2022
Real Estate Investing
There’s no perfect time to buy real estate, but there are some definite advantages to buying during Q4. Starting in the fall and extending through winter, real estate prices dip in many markets. By leveraging these end-of-year trends, you can land a great property at an affordable price and achieve profitability sooner.

When it comes to “timing the market,” it’s not really possible to get it exactly right. There are just too many variables at play for anyone to know with certainty that the market has bottomed out. Real estate prices go up more often than they go down, so there is a strong chance that the average home price won’t ever be much lower than it is today. For that reason, JOD doesn’t advise waiting around for an extended period of time to buy real estate. You don’t want the train to leave the station without you.

However, none of that means that you can’t study seasonal patterns in a specific market and leverage them to your advantage. Many markets experience quarterly trends that repeat year after year; one such trend seen in markets throughout the U.S. is a slump in activity that starts during the holidays and extends through the new year. This reduction in activity creates advantages for buyers who remain active during Q4. Below, we’ll analyze three of these advantages to show you how buying during Q4 can help you get a great deal on an awesome property.

Advantage #1: Properties are More Affordable

The graph below shows the median sale price of existing U.S. homes every quarter from Q3 2017 through Q3 2021. For most years, you can see that prices usually dip starting in Q4, stay low or go lower in Q1, then surge ahead in Q2.

Source: https://www.statista.com/statistics/272776/median-price-of-existing-homes-in-the-united-states-from-2011/

What causes this dip in prices? Basically, most people consider winter a bad time to move. If you move during winter, you add the stress of moving to the already-busy holiday season. Plus, if you’re a parent, you’ll have to uproot your kids in the middle of the school year. For these reasons, buyers and sellers leave the market during winter. (Remember, most buyers are also sellers; they’re selling one house to move into another.) As a result, the market slows down, and homeowners who are determined to make a quick sale must lower their prices to attract the buyers who remain in the market.

Notice that prices did not dip in the fourth quarter of 2020. Instead, they rose and continued to rise through Q2 2021. During 2020, lockdowns and work-from-home fueled demand for bigger houses. However, many sellers did not want to list in such unpredictable times, and the supply of homes tightened. The result was a total deviation from expected seasonal trends that no one could have predicted at the start of 2020.

The point is that you cannot be absolutely certain how the market will behave in the future. Analyzing past performance can help you make an educated guess about what the future holds, but past performance does not guarantee future results. This vital principle is not exclusive to real estate; it applies to any form of investing. While it is likely that the Q4-price-dip trend will resume as the world realigns itself, there are no guarantees.

It’s also important to remember that these trends will vary significantly in different regions. For example, snowbird locations (like Palm Springs or Florida, where people flock to avoid the winter chill) may actually see an uptick in prices during Q4. Do your own research and seek reliable data for the specific market you are considering.

Advantage #2: There are Fewer Buyers to Compete With

The flight of buyers from the market in Q4 means that you’ll encounter less competition when you make an offer. In turn, you’re less likely to get into a bidding war that drives up the price of the property you want to buy. Ultimately, less competition helps you keep your purchase price down and makes it easier to achieve profitability.

If you are the seller’s only serious buyer, you’re less likely to be pressured to close quickly. As a result, you’ll have more time for due diligence, analysis, and inspections, which will help you to feel confident that the property has investment potential and that the price you’re paying is fair.

With fewer buyers in the market, sellers are more likely to accept offer terms that favor you, such as specialized inspection or additional contingencies. It’s easier to play hardball when you’re the only buyer in town. 

Also, when you buy in Q4, you’re less likely to spend months getting outbid on every deal you pursue. While it’s better to get outbid than to overpay, it’s still fatiguing when months of work fail to produce results. By taking advantage of a smaller buyer pool in Q4, you significantly increase your chances of coming out on top.

Advantage #3: Sellers are Motivated

As discussed above, real estate prices tend to drop during Q4 because many consider it an inconvenient time to buy or sell. It is reasonable to assume that many of the seller’s who list during this less-than-ideal time of year are under some kind of pressure or time constraint. They are motivated to get a deal done quickly. Whether these sellers cannot keep up on loan payments or need liquidity to pay bills, their priority is not to get top dollar but to get cash in hand as soon as possible. These situations are advantageous to buyers, as a motivated seller is likely to accept a lower purchase price to get their home sold quickly.  

Sellers may also feel pressure to complete a sale during Q4 because of changing tax laws. Most of the time, if the government votes to change how real estate is taxed, these changes take effect at the start of the new year. For example, if the capital gains tax is slated to increase as of January 1, 2023, sellers will want to close by the end of 2022. If they haven’t been able to sell by the fourth quarter of 2022, they’ll feel increased pressure with each passing day. The closer it gets to the new year, the more negotiating power you’ll have.

For this reason, it is to your advantage to keep an eye on real estate tax laws. Knowing that tax laws are about to change can give you insight into a seller’s psychology and just how far they’ll budge on price.

Pro Tip: It pays to stay on top of local, state, and federal tax law trends. Check out our articles on Short-Term Rental Tax Benefits and Real Estate Tax Depreciation Methods to learn the basics of how tax laws affect real estate investors. The government incentivizes real estate ownership through the tax code, but it is up to you to dig into tax laws and learn how to take advantage of these incentives.

Drawbacks of Buying in Fourth Quarter

Buying in Q4 has its drawbacks. Chief among these is that you must be busy and on-call during the holidays to get your deal done. No one wants business calls interrupting family time, but this could become a reality if you’re still working on your deal in November or December.

Another drawback of buying in Q4 is reduced inventory. As prices dip, sellers who can afford to wait may choose to keep their property off the market until Q2 or Q3. As a result, you’ll have fewer options to choose from.

One last drawback of buying in Q4: Many properties listed for sale during Q4 are properties that were originally listed in Q2 or Q3 and never sold. There may be a very good reason why the market rejected these properties—perhaps they are in bad shape or overpriced. For any property you’re considering buying, check to see how long it has been on the market. Be wary of properties that have been listed for months.

Conclusion

Historically, Q4 has been an advantageous time to buy. The holidays and school schedules play a large role in reducing the number of buyers and sellers in the market. This results in a pool of highly-motivated sellers and fewer buyers to compete with, setting the stage for you to get a great deal. 

There are three important caveats to understand when it comes to buying in Q4: 

1) These trends do not apply everywhere. Take the time to research your market, and understand how seasonality affects local prices. 

2) Though the Q4 price dip has been a consistent trend in the past, Covid and remote work have rapidly reshaped how real estate markets behave. It is likely that Q4 trends will return to normal, but past results do not guarantee future performance. 

3) The general trend of real estate is to go up, so you shouldn’t skip an awesome deal in Q3 just because you think that prices will dip and give you an even better price in Q4. A bird in the hand is worth two in the bush.

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Seth Kniep

Married a pearl. Fathered 4 miracles. Fired his boss. Turned a single dime into $104,857. Today, a self-made millionaire, Seth and his team of 8 badass coaches teach entrepreneurs how to build passive income on Amazon.

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